The pullback in the dollar from the mid-August faded last week as emerging market and trade tensions resurfaced as potent forces. The outperformance of US assets in August was expected to generate dollar-sales at the end of the month, the dollar gained against all the major currencies at the end of last week. The dollar’s low was registered by the middle of the week. The MSCI Emerging Markets Index fell for the last three sessions after rallying the first two days of last week. The euro and the dollar-bloc currencies made new lows ahead of the weekend.
We had suggested the 94.00 area was a reasonable technical target for the Dollar Index. It was the 38.2% retracement of the rally since mid-April. The low last week was a little below 94.45 registered on Tuesday. This also represents the low for the month. Over the next three sessions, a base seemed to have been carved out there. The Dollar Index had been pushed below the trendline drawn off the June 14 (ECB meeting) and July lows but closed the week back above it (~94.70). The technical readings on the daily bar charts have not turned higher, but are poised to do so early next week, which starts off with a US holiday. The Dollar Index can rise toward 95.70-96.00 without meeting strong resistance. The weekly readings are not particularly constructive, but the monthly ones suggest the Dollar Index has not peaked.
The dollar made new lows for the week against the yen on August 31 (~JPY110.70). Softer core bond yields, heavier global stocks, and pressure in emerging markets make for a constructive environment for the yen. The dollar slipped a little more than 0.1% on the week against the yen and about 0.65% on the month. The dollar had begun the month near JPY112.00 and fell to JPY109.80 on August 21. The dollar’s recovery faltered just above the weekly downtrend line going back to 2015 (~JPY111.60). The greenback finished just below the middle of the session’s range ahead of the weekend. The 61.8% retracement of the dollar advance from the August 21 low is near JPY110.55.A break of this would retarget the JPY109.80-JPY110.0 area. Note that this year’s average is near JPY109.40. The average here in H2 thus far is JPY111.20. The dollar has not closed above JPY112 in nearly six weeks and offers the nearby cap.
The euro peaked on Tuesday $1.1735, a little more than 10 pips shy of the month’s high. It finished the week a little more than a cent lower, recording lower lows for the last three sessions. The euro penetrated the downtrend line drawn of that mid-June high (~$1.1695)and even closed above it in the middle of the week. It was a false break and the euro. The euro finished the week well below it. The euro dipped below $1.16 before the weekend and closed a little above. The price action does not inspire confidence, but it may take a break of $1.1535 to encourage thoughts of another run at the mid-August lows below $1.13. The RSI and Slow Stochastics have turned down, but the MACDs have not.
